Maxine Udall has a great post about Adam Smith and his belief in societal progress based on ethics. Here’s an excerpt:
Smith viewed society as progressing to greater “opulence” and more virtue. However, he recognized that moral sentiments are shaped by a society’s practices…[individuals] will over time shape norms and institutions, which in turn will cause moral sentiments to progress.
It is when I come to this part of Smith that the 18th century no longer brings comfort to me. I find myself asking…How does failure to hold investment bankers and rating agencies accountable affect the hard-wired sense of fairness and the moral sentiment of resentment that many of us feel? If BP is not held accountable, how will that trickle down and shape the moral sentiments of the citizenry? Will our inner impartial moral arbiter waiver as we confront decisions about how we should act toward our neighbor, our community, and our nation?
Adam Smith believed humanity (or at least England) was progressing in wealth and in ethics. To date, we have all tended to focus on the financial aspects of these crises in corporate judgment and management. I’m pretty sure Adam Smith would also have noticed that the potential for moral hazard extends far beyond the relatively unscathed main players. There will almost certainly be a moral trickle down that corrupts production and exchange at all levels of our society. An advanced, technologically complex nation that cannot or will not achieve the basics of accountability and restitution (aka justice) with financial and corporate entities that have harmed its citizenry deeply and lastingly is (I very much fear) evidence of the beginnings of a failed state. That the failure will be economic and moral, as well as political, is probably no coincidence.